The twin threats of trading difficulties in its core regions of Britain and France would encourage me to sell out of Kingfisher (LSE: KGF) without delay.
The DIY specialist has seen its share price leap 10% since the release of third-quarter numbers less than a month ago. But I can't help but fear that share pickers are a bit premature in hoping that a turnaround at the long-troubled business is just around the corner.
Kingfisher announced in November that while like-for-like revenues (constant currencies) in the UK and Ireland rose 1.5% in the three months to October, sales at B&Q dropped 1.9% in the period as disruption created by its 'ONE Kingfisher' transformation plan continued.
But the weak performance in its home markets pales into comparison with what's going on in France right now as its Castorama and Brico Dépôt outlets underperform the broader market. Sales in these divisions shrank 3.2% and 5.2% respectively during Q3, forcing like-for-like sales at stable rates across the Channel 4.1% lower year-on-year.
Now the one bright spark from Kingfisher's latest statement was that sales growth at its Screwfix stores in the UK continued to impress. Revenues are booming thanks to strong digital sales, good product ranges and new store rollouts, and total sales here jumped 16.6% in the last quarter.
All things considered however, I reckon the FTSE 100 stock is far too risky right now given the troubles thrown up by its transformation strategy and the possibility of prolonged pain, not to mention a backcloth of deteriorating retail indicators in the UK as domestic growth grinds to a crawl.
City analysts are predicting a 2% earnings slip in the 12 months to January 2018, and while a 12% rebound is predicted in the following year, I would not be surprised to see these hopes begin to recede in the coming months. I think investors should consider selling before this happens.
Kingfisher's forward P/E ratio of 13.8 times may be low, but this is not low enough to prevent heavy share price falls in my opinion.
A tasty growth share
Those seeking a retail play with far superior growth prospects to Kingfisher my want to give Just Eat (LSE: JE) a close look.
The FTSE 250 star, which will join the Footsie elite index in 2018, continues to go from strength to strength and it hiked its sales guidance in late October after announcing a 47% rise in the July-September quarter. And I expect revenues to keep rising as acquisitions like that of HungryHouse bed in.
City analysts are expecting profits at the takeaway titan to spring 36% higher in 2017, and to follow this up with a 41% advance next year.
And I consider Just Eat to be a bargain in light of these bright forecasts. A prospective P/E ratio of 46.4 times may be expensive on paper, but a corresponding PEG readout of 1.3 indicates that the business is actually exceptionally priced relative to its growth prospects.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Just Eat. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.